The cost of wine

Over the last few days there's been an interesting thread of comments on Fredric Koeppel's blog, Bigger Than Your Head, about the cost of wine.  I thought I'd repeat it to some extent here -- and expand upon it a little.

I do so because there seems to be small awareness of the costs of wine, specifically how a 2 euro bottle at the winery door in Italy can become a $15 bottle on the shelves of a wine shop here in the United States. Americans may think the producers are cleaning up, but most of them are just getting by -- often with the pooled, non-wine incomes of 2 or more family members.  The small, family-owned wineries are putting everything they have into their wines, and they're not doing it for sheer love of lucre.

Nunzio Aurisicchio of Angelarosa and his family.  Nunzio used to sell his grapes to co-ops and bigger wineries.  After considerable investments he bottles under his own label including a Greco di Tufo DOCG.  A farmer from a long line of farmers, he typifies the transition from a bulk-wine to a fine-wine approach, an economic imperative given the intense competition from the southern hemisphere. 

Let's start with the exchange rate.  Recently the euro was up to about $1.60, which means that in effect it was about $1.64 when you went to order wine.  If you had ordered then (as we thankfully did not) the 2 euro bottle would have cost $3.28. 

Then there's a) trucking the stuff to the port, extra if you want refrigerated trucks in hot weather, b) all the services of inspection, customs, security, etc., c) loading and shipping, extra if you want to protect the wine from the heat, d) insurance, e) customs duties, unloading, transport to a warehouse, extra for reefers, f) warehousing, g) paying people for these services at every step and h) paying for delivery to the buyer of said wine.  Plus marketing costs like tastings, plus sales costs (fuel, tolls, etc.), plus fixed costs like office rent, telecommunications and the like.  Not to mention state and local taxes.  Oh and the back-office costs of accounting and billing, compliance and the rest of it.

With all that, let's come up with some rough numbers.  Each bottle costs $3.28 at the cantina door, plus $2.50 or so for shipping, customs duties, and the like.  That's $5.80 rounded. 

Those are up-front costs to the importer.  He hasn't marked it up yet, nor has the distributor or the retailer.

Let's say the importer marks it up 30% (acquisition, sales and marketing costs plus something left over for an operating profit), so the bottle cost rises to about $7.55. For the sake of convenience, let's say the distributor adds  30%, and the retailer 30%.  These aren't the biggest markups in the world, but even here the 2 euro bottle winds up on the retail shelves at about $12.75 or higher -- with slightly higher markups it's got a $14.99 retail price. 

You might say, "Well, these markups are pretty healthy.  The producer isn't getting much but the middlemen are."  Yes and no.  The overheads are high due to the structure of the booze biz in the US, and partly due to the people-intensive nature of the business. 

But no, the producer isn't getting a lot per bottle.  Aside from the big shots in Tuscany and Piedmont, for example, small producers don't get a huge amount in the way of EU or Italian subsidies.  Most of the winemakers I meet in Italy have spent a good amount to upgrade their plants and viticultural methods, their cellars and their storage facilities.  Still, the profit they realize on a 2 or 4 euro bottle isn't great.  Costs for labor, fuel, bottles, corks, cartons, labels and every other thing they need to do business are shooting upwards these days. They can pass along only a modest percentage of these higher costs because there is a wine surplus.  Domestic consumption is falling.  The United States, Italy's most important export market, is currently very price sensitive, given both the weak economy and the punishing exchange rate.  Germany is mad for Italy's reds, but even the Germans can't absorb all that wine.

Italy's economy is very weak now, too, so the producers aren't faced with wonderful choices.  But it's certainly better to sell the wine cheap than have it sit too long.  Anyway, there's always a new vintage to make room for. It gets ruinously expensive to rent out a warehouse when your own is full.

"Then why do the producers bother?" you may ask.  That's a good question.  I don't know if I'd have the patience and fortitude to do what they do, and to pour my heart and soul into it as they do. 

This is where the ethos of winemaking comes in -- the culture of the farmer close to the earth and its expression in the grape.  This is where the magic lies, the thing we all want to experience, somehow, when we open a good bottle of wine, even one that cost 2 euros at the outset.  As I said before, these producers aren't in it for the sheer love of lucre.  If I may rhapsodize for just one moment, they have mud on their boots and heaven in their hearts.  Poets of the earth.

Comments

[Fredric Koeppel]

In other words, the wine business sucks, unless (in Italy) you're Antinori, Frescobaldi or Gaja.

And we'll never, in the U.S.A., be shed of the entrenched three-tier system.

And thanks for the link.

[Strappo]

That sums it up pretty well. I'd say wine is an amour fou for most of us.

[Dr. Debs]

Thanks for this article, which explains how the costs mount up. What amazes me is that people don't seem to do this with cereal--but they could. Do you know how little a farmer gets for wheat? But people pay it, because cereal is one of life's basics. Of course, for me, so is wine. I wish there was some way the actually growers/makers could get more--especially those who don't have a roomful of marketing execs setting a price for wine that was so high it beggars belief. By the end of your story, however, I was thinking "you go! price your wine at $150 a bottle! you deserve it!" I won't buy it, but still.

[Strappo]

Well, that WOULD be nice. Not that it would ever get sold.

Unless WA gives it a 95 of course.

[gianpaolo]

Why do we make wine? Because it makes us look nice going around with our gentleman's of leisure gear...not to mention the mortages that you have to pay if you haven't inherited! Banks are not very happy if you don't pay your debt back these days. So you have to keep going, hoping that peopla like Strappo will be able to either sell or drink all this wine.

[Danny]

Try these links, they are pretty thorough about what it takes

http://moorebrothersblogs.com/?p=251
http://moorebrothersblogs.com/?p=253
http://moorebrothersblogs.com/?p=254
http://moorebrothersblogs.com/?p=255

[Strappo]

Will check them out, Dnny. Thx.

GP, when are you going to Brioni for your clothes? Too much Marks & Sparks! You're not looking the role!